What happens when a substantive Florida law which voids any venue selection clause in a construction contract calling for venue outside of Florida comes up against an arbitration agreement governed by the Federal Arbitration Act? Federal law prevails.
In a recent case, a Michigan based Contractor and a Florida based Subcontractor entered into a contract for the improvement of real property located in Florida. The contract contained an arbitration clause which stated that any dispute arising out of the contract must be arbitrated in Michigan in accordance with Michigan law. When litigation ensued, the subcontractor argued that the arbitration clause was void under Florida Statute § 47.025 which invalidate a venue clause in a construction contract if the venue clause requires a Florida contractor to sue outside of Florida. The trial court agreed.
On appeal, the Second District Court of Appeal reversed the trial court, holding that, if the Federal Arbitration Act applies, it preempts Fla. Stat. § 47.025. Courts have repeatedly held that the Federal Arbitration Act governs the enforceability of arbitration clauses in contracts involving interstate commerce (contracts among parties from different states for example). The FAA is broadly interpreted to favor arbitration wherever and whenever possible. Florida courts must enforce an arbitration agreement that is valid and enforceable under the Federal Arbitration Act even when the agreement would be unenforceable under Florida law. Accordingly, if the Contract between Contractor and Subcontractor involves interstate commerce, then the Federal Arbitration Act applies, and the parties must submit their dispute to arbitration in accordance with their agreement.
The take away from this case is that you must read and consider every clause in a contract – not only arbitration contracts -- and be aware of clauses which may control where and how you handle disputes relating to the contract.
Rosenthal Law Group can help review and negotiate the terms of your contracts and arbitration agreements. Contact us at 954-384-9200 for a consultation.